The Financial Conduct Authority (FCA) has set out temporary measures to help listed companies raise cash quickly during the coronavirus crisis.
The watchdog said it was likely many companies will turn to capital markets to raise money to support their recovery.
Since lockdown measures prevent more than two people meeting, it’s harder to obtain shareholder approval for a transaction under current rules.
“The notice period for general meetings adds to transaction timetables and might also jeopardise an issuer’s ability to complete critical fundraising transactions quickly,” the FCA said.
Companies with a premium listing can ask for permission not to hold a general meeting to approve a capital raising. Companies will need written undertakings from shareholders that they would support the transaction if a meeting were to be held.
The FCA added companies could make use of the new simplified prospectus that was introduced last year.
“We encourage listed companies issuing new equity to recapitalise the company in response to the coronavirus crisis to use this simplified disclosure regime where possible”.
The watchdog is not conducting a formal consultation but said it welcomes feedback from stakeholders on the measures. The guidance will apply from today.
Christopher Woolard, interim chief executive of the FCA, said: “The UK’s capital markets will play a vital role providing finance to businesses to help aid the recovery from this crisis.”
“Our aim is to help companies to raise money quickly and effectively, while ensuring they respect the needs of investors, both current and future. We think this package strikes that balance.”
More companies will raise cash ‘in due course’
Some retailers who have been significantly impacted by the pandemic have already begun raising cash.
WH Smith had to tap investors for a cash injection after it closed its travel business and the majority of its stores. It has raised £165.9m through a share placing.
Similarly, fashion retailer Asos raised £247m in a bid to shore up its financial position as it warned of a “prolonged downturn”. It has placed 15.8m new shares at a price of 1,560p per share.
Helal Miah, investment research analyst at the Share Centre, said other companies are likely to follow suit. “Cash flows will be desperately low and they will need to fund the gap until some form of normality returns,” he said.
The measures will make it easier for companies to raise cash, which will “lead to other capital raisings in due course.”
“I do though think that a larger portion of these companies will fall under the retail or leisure sectors than other parts of the economy where conditions are a little more acute,” he added.
Investors welcome the FCA’s measures
Andrew Ninian, director of stewardship and corporate governance at the Investment Association (IA), said: “We welcome this package of measures from the FCA which aligns with our member’s aims of ensuring companies have access to additional capital as quickly and efficiently as possible during this difficult time, while at the same time ensuring shareholder rights are respected.”
Last week, industry body the Pre-Emption Group (PEG), said existing investors in UK-listed companies should be allowed to buy a bigger share of rights issues, to make it easier for firms to raise cash.
The group of listed companies, investors and intermediaries said the “unparalleled economic situation” could see a temporary relaxation of the rules.
In order to help companies raise equity capital, the PEG had recommended investors consider supporting issuances by companies of up to 20 per cent of their issued share capital.